One-Member LLC Operating Agreement
New business owners must decide how they will legally structure their business. Business structures such as a sole proprietorship, limited liability company or S-corporation are established to determine how a business owner will run their organization, as well as how the company will be taxed. A common business structure is a one-member (also referred to as "single member") limited liability company. This type of company follows an operating agreement or articles of organization that specifically outlines how the company will be managed.
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Function
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An operating agreement for a limited liability company is similar to the bylaws of a corporation. The single-member limited liability owner gets to make the rules of his or her company and include them in the operating agreement. The agreement spells out how the company will be managed, financial matters and its goals. It is usually not necessary to include information on who will have authority and rights of the company in a one-member LLC operating agreement because it is assumed that the only managing member has control by default.
Features
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The specific parts of a single-member LLC provide the legal language of the business. The agreement includes sections on the formation of the business which spells out the business name, purpose and location. This section also indicates who the members of the LLC are. In a single-member LLC, the agreement specifies the member's name and that he is the only member with exclusive membership rights to the business.
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Filing an Operating Agreement
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Because limited liability companies are regulated by the individual states in which the company does business, the owner must register the LLC with the secretary of state. The business owner is obligated to complete an "articles of organization," but not all states require an operating agreement. It is, however, in the best interest of the business owner to include an operating agreement along with the organization articles. States have default operating agreements which would not be as desirable as coming up with your own company's rules.
Benefits of a One-Member LLC
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Many entrepreneurs form a single-member LLC for liability and tax concerns. Single-member limited liability companies allow owners to function similar to a sole proprietorship without the risk of being responsible for the debts and other liabilities of the company. In addition, one-member LLCs are not bound by the regulations of a corporation such as stockholders, shareholders and the inability to change tax status.
Taxation
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One of the benefits of a limited liability company is its taxation flexibility. Limited liability companies may choose to be taxed like a sole proprietorship or a partnership, depending on the number of members. Single-member LLCs are treated as a sole proprietorship for tax purposes. Members must pay income taxes on profits. Taxation information is included in the operating agreement which describes the pass-through tax status of the single member.
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References
- Photo Credit organizer image by Anton Gvozdikov from Fotolia.com
